Thursday, July 16, 2009

This brief post by Salmon reminds me that TBTF is here to stay, despite numerous calls to break the big banks up. Given that, what should we do? The so-called "tax" in the linked article would be a partial fix, but I don't think its enough. I would like to see a multi-dimensional insurance fee (or tax if you prefer) based on risk, size, and leverage. Some qualitative measures could be thrown in as well - stability of funding (deposits vs. brokered deposits vs. credit markets vs. whatever), strength of internal risk analysis, corporate structure, over-concentration or over-diversification, and more I haven't thought of. The idea of making the fees counter-cyclical should be implemented as well.

Of course, such a wonderfully precise system is about as likely as breaking up the big banks - both are blocked by the fact that the banks "own" the Senate (per Dick Durbin). But I can still dream, eh?

Tuesday, July 14, 2009

The latest post by Reich has appeared on the blogs of the usual suspects, and on the blogs of the usually suspect. I think it appealed to a lot of people who don't usually read Reich because it was a declaration of doom from a normally optimistic person. But that doesn't mean that it was a ground-breaking post.

Reich is right that we can't return to the previous economy, but he gets a number of things half-wrong. First, he repeats the old wheeze about the consumer being 70% of the economy. That's the old economy; we actually need to go back to the old, old economy where the consumer is ~63% of the total, or less. Second, he says that we can't count on exports for growth because the rest of the world is contracting. This is true as long as the dollar is over-valued. A fairly valued dollar (roughly 0.65 EUR, 85 JPY, and 5 CNY) would do much to eliminate the trade deficit in goods other than oil. The Obama administration needs to work on the issue at lot harder. Finally, he says that we don't know what the future economy will look like. While making predictions about the future is especially hard, we certainly know what we want the future economy to look like. It would be filled with a lot of investment in energy-saving technologies, high-speed rail, public transportation, and national health care. It would also see a significant contraction of the finance, insurance, and real estate industries. But the political will to back major changes doesn't exist right now, and no clear leader has emerged. Obama is obviously in a position to lead, but he has been very tentative so far. With no leader, we will experience business-as-usual, but at a lower level.

V, U, L, or X - what will the future hold? Right now I think a couple of years of L are ahead of us.

Friday, July 10, 2009

GM is out of bankruptcy in a shockingly short amount of time, like Chrysler. That the transition went so fast is good, though I foresee lawsuits of varying merit following the new GM for a while.

Unlike the Chrysler-Fiat alliance, GM did have a lot of product overlap to shed in North America during bankruptcy. And I don't think management fully eliminated it. There is almost complete duplication between the Chevy truck lineup and the GMC lineup, especially since GMC killed their two larger commercial truck platforms. Chevy and Caddy occupy different market segments, but what is the role of Buick? American luxury? Huh? The marketing weenies have their work cut out for them in this regard. The decision to keep Buick may have more to do with its strength in China than its future prospects in North America.

As for the dead brands, killing HUMMER and Saab were no-brainers: they were both close to death already. Saturn, too, has had a tremendous decline in sales over the past two years. But the basic concept of the brand - a limited range of competent cars sold in a low-pressure atmosphere - was ruined several years ago by bureaucratic infighting at GM headquarters. It became just another engineered badge. Pontiac had been an engineered badge for years, supposedly with more a more sporty, performance oriented lineup of cars than Chevy. But Chevy offered performance versions of its vehicles, and GM's ultimate performance vehicle remained with the brand. In the end, Saturn, Pontiac, and Chevy all competed for roughly the same customers at the lower end of the market. Chevy was the logical one to keep.

For reference, here are the June sales numbers for GM from 2009 and 2007:

Buick - 8601 (16519)

Cadillac - 8473 (16647)

Chevrolet - 106712 (186474)

GMC - 19668 (40457)

HUMMER - 1078 (5093)

Pontiac - 23740 (33683)

Saab - 779 (4361)

Saturn - 7520 (21686)

Overseas (meaning outside the US+CA market) GM is keeping everything but Saab, which will be bailed out by the Swedish government via Koenigsegg. GM will retain a minority ownership in Opel and Vauxhall under a tentative agreement with Magna. The remaining operations are GM Daewoo (which are badged as Chevrolets in most of the world), Holden (AU-NZ brand with one home-grown platform), GM China (Buick, Caddy, and others), and Wuling (a joint venture with CN-only platforms).

Wednesday, July 8, 2009

Most of what needs to be said about the hole California has dug for itself can be found at Calitics. I have two brief additions.

The first is that in terms of gross state product the $26B dollar deficit is quite manageable. Using 2007 numbers, it amounts to 1.45% of GSP. That works out to about $716 per person. My guestimate of how many people could afford to cough up extra money is 20%, so the bite would be a more significant $3600 per person for the more narrow group. But if half of the deficit is closed by cutting spending, only 10% of the population would have to cough up extra dough. The main point is that the crisis is essentially political, not financial.

The second is that a constitution shouldn't contain policies. The text should be limited to rights and procedures. Requiring certain levels of education spending or limiting how much taxes can increase just should not be included. (The one policy added to the federal constitution - Prohibition - was an abject failure.) California's initiative process has allowed voters to put inflexible policies into the constitution without consideration of the effects on current or future budgets. This needs to be changed. While there is the danger that bad current policies will once again be included, I think California has no choice but to call a constitutional convention. The state is clearly ungovernable.

Monday, July 6, 2009

We're still in recession, yammering about green shoots not withstanding.

We're on pace to reach 10% for U-3 soon. I was optimistic about U-6; it's already at 16% and will top out around 20-21% next year. Update 2009/07/07: I think U-3 will top out around 12%.

Oil never got as low as I predicted, so the petro-states aren't suffering as much as I thought they would.

The dollar has weakened slightly, but I expected most of the decline to come in the second half.

No signs of a country leaving the Euro yet. I'll almost certainly be wrong here.

China's economy has weakened some, as has the renminbi, but so far the country has held up better than I expected. But the strength could be illusory as some of the economic indicators are contradictory, and investors apparently are doubling down in the export sector.

Germany and Japan have suffered significantly. I haven't checked on the smaller European exporters or the smaller Asian ones.

Both Chrysler and GM filed for bankruptcy, though later than I expected. I did not expect Fiat to come to the rescue, but it still remains to be seen if Chrysler can hold on with the market at ~9.7M units SAAR.

The banksters still roam free, sucking blood out of helpless taxpayers. The Fed has not had to inflate its balance sheet further, however.

CRE prices are getting hammered, but GGP is the only major property company that has filed for bankruptcy so far. Not as many major retailers have folded as I expected.

Housing prices continue to fall, and the decline in volume has slowed. I am surprised that more major builders haven't taken a dirt nap, but maybe I missed the announcements.

So far the economy is performing better than I predicted. Is that because of my tendency to be pessimistic, or because of my tendency to be early? Check back in December.

Thursday, July 2, 2009

Pictures will have to wait until tomorrow when my data source should be updated. Until then my main comment is that once again the labor force number is totally whack; the BLS claims it declined by 144K last month. That's why U-3 only increased by 0.1pp despite a loss of 467K jobs.

Update: graphs have arrived.

The red line remains the key one in this graph. The ratio is still going down, but I don't think panic is warranted until it hits 44% or so. Right now it is at 45.7%.

Still nothing good here.

This graph shows how the workforce number really jumps around.

This shows the non-adjusted change in hourly wages. For the all employees line, supervisory, managerial, and executive employees are excluded, along with the self-employed. You can see that the average increase in wages over the past 5 years has been less than the average increase in GDP, meaning more of all income either accrued to people outside the non-supervisory group or came from non-wage sources.

The question raised by this graph is about the cause of the secular downtrend in average weekly hours. Has part-time work been forced on people so they don't qualify for benefits, or has it been requested by employees who are looking for more family-friendly hours?

Some people have gotten slightly hysterical about the MoM change in wages, which was zero. Concern is warranted, but MoM numbers always jump around. The number should be watched for a few more months before the alarm is sounded. Concern over weekly hours is definitely premature. More part-time employment spreads the harm around more, but lessens it for each affected person. IMHO it's better for the country for the harm to be spread around because the country has such a weak safety net.

Wednesday, July 1, 2009

Not much change here. (Note: I have switched data sets for the registered vehicles from 2 axle vehicles to all vehicles, so the numbers for vehicles per capita are higher.)

Absolute sales are down from last month, but that's a seasonal pattern.

This month's new graph is once again not terribly revealing. Note that I have classified the brands based on where a brand's operations are based, and not on country of production or location of a parent company.

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